Leverage Your Taxes!

This article was originally published for RC Peck’s Fearless Wealth Newsletter in November 2005.

Tax Time! Tax time starts way before April 15th each year.
Here are five suggestions to consider before the end of the year.

  1. Sell Your Losers. The IRS allows you to offset realized capital gains each year with realized losses, and you can take an additional $3,000 in losses against earned income.If the loser you are selling is an individual stock and you still want to be invested in the stock market then simply replace your individual stock with “SPY”. SPY is one of the tracking symbols for the S&P 500. So you will be allowed your loss but you will still have exposure to the stock market.
  2. Max Out Your Retirement Accounts. You can put away up to $14,000 in a 401(k), up from $13,000 last year. And if you are 50 or older you can put away an additional $4,000, for a total of $18,000, up from $16,000 last year. After you’ve maxed out your 401(k) you can still contribute fully to an IRA, if you earn under $150,000 a year.
  3. Donate to a Charity. If you itemize, you can deduct charitable contributions. A recent tax-law change provides an additional incentive to make those donations. Any cash contribution made to a public charity, through December 31, is not subject to the usual limit of 50% of adjusted gross income. Instead, you can deduct 100%.
  4. Give Appreciated Stock to Your Kids. If you’re saving money for a child or grandchild through a custodial account, you can give them appreciated shares, instead of selling the asset and funding the account with cash. The child can then sell at a lower capital gains rate, typically 5% instead of 15%. In addition, the annual gift tax exemption has increased to $12,000 from $11,000 in 2004.
  5. Donate Appreciated Artwork. A few years ago, the federal government made an important change to the tax code. Now when you donate works of art to a charitable organization—such as a hospital, university or non-profit organization—you can deduct the gift’s fair market value, rather than just the cost basis.

Here’s to leveraging the tax law to your advantage.

With warm regards,
RC’s Signature